Tobacco giant Altria (NYSE:MO) is trying to salvage whatever value remains in its $12.8 billion investment in Juul Labs.

The world is crashing down around the leading electronic cigarette maker as illnesses and deaths purportedly linked to vaping soar; regulatory agencies investigate its marketing tactics, claiming they are really attempts at luring teens to use its device; retailers like Walmart halt the sale of all e-cigs; major broadcast outlets refuse to run e-cig advertising; and international markets begin to shut their doors to Juul and other e-cig manufacturers.

Older couple holding Juul electronic cigarettes

Smokers who "Juul" to wean themselves off cigarettes may find it harder to do so as the e-cig leader fights battles on several fronts. Image source: Juul Labs.

It even seems like it was a big contributing reason Philip Morris International decided to back out of negotiations to merge with Altria.

What had originally looked like a smart play by Altria to ride the coattails of the dominant vaping company on the market as its core cigarette market declined now looks like it was merely burning money.

Tarnishing its reputation

The tide has really turned against Juul and the e-cig industry. While electronic cigarettes are still viewed as beneficial throughout much of the rest of the world because of their ability to wean people away from the much more dangerous smoking habit, here in the U.S. a long-standing animus against the cigarette alternative remains among anti-smoking crusaders and the regulatory apparatus. 

Although there has been no causal relationship linking the rising incidence of lung illness and a dozen deaths to vaping, something the Food & Drug Administration itself acknowledges, it was the agency's public solicitation for any illness related to vaping, no matter how tangential, that caused the number of reports to spike. 

It may be that a link will be established, though right now it seems THC -- the psychoactive compound in marijuana -- and vitamin E acetate are the most common thread with the cases. But the frequent reporting on the subject is damaging the e-cig industry's reputation, and by extension that of Juul Labs, since it is by far the most popular device on the market.

Heading for the exits

The drumbeat of negative news is taking a toll on the company. With the FDA calling teen use of e-cigs an "epidemic," the Trump administration is proposing to ban the sale of flavored e-cigs to counter the rise, a move several states have already undertaken themselves. Flavored pods represent 80% of Juul's revenue.

Large investors are now looking to dump their positions in Juul, as it has lost more than a third of its private market value, and the e-cig maker also just announced it was firing 3,900 employees as it restructures its business. Perhaps the most significant development is Juul's CEO Kevin Burns announced his resignation.

As the point man for the company, the mounting woes of the business undoubtedly landed at his feet -- but with former Altria executive K.C. Crosthwaite immediately stepping in to replace him, it's clear the tobacco giant was holding the door open for Burns to leave. Now with its own man in place, Altria can try to salvage its 35% stake in the e-cig maker.

A chance for redemption

Altria, of course, has decades of experience dealing with regulators, and just as many years marketing in a way that keeps underage youth from using its products. While it cements the tobacco company as the point man for the e-cig maker, a relationship that displeased the former FDA commissioner, it also puts a steady veteran in charge who can lead the business through the storm.

While Juul had long presented itself as the anti-tobacco company, it has now fully aligned itself with the industry -- and that, if anything, could be what saves it. Juul may remain independent of Altria as a business, and its goal may still be eliminating cigarettes, but it will only be through becoming the essence of a tobacco company that it survives, along with Altria's investment.